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Seyfarth Synopsis: The Department of Justice has reversed the previous Administration’s position on employment protections for transgender individuals, and issued a memorandum that will likely be relied on by private employers seeking who wish to use their religious faith to engage in otherwise prohibited discriminatory conduct.

In a bombshell week, with significant implications for employers, the Department of Justice issued two memos setting forth its views on transgender discrimination claims and an employer’s ability to make decisions based on its religious beliefs.

On October 5th, 2017, the Department of Justice released a memorandum stating that the new position of the DOJ would be that Title VII does not protect transgender persons from discrimination in the workplace. However, somewhat confusingly, the memo specified that transgender people were still protected under Title VII’s existing formulation. This presumably means that a transgender person may sue under Title VII if their employer discriminates against them on the basis of their race or country of origin, but not on the basis of sex or gender identity. The DOJ had previously argued in Court that Title VII does not extend to claims of sexual orientation discrimination.

On October 6th, 2017, the Department issued new guidance providing that “[e]xcept in the narrowest of circumstances, no one should be forced to choose between living out his or her faith and complying with the law.” The directive explicitly states that private companies must be given the same leeway regarding religious beliefs that churches receive. This guidance may impact hiring, and could possibly give any private organization the ability to hire, fire, and discipline employees based upon the faith of the owner or supervisor. It may also lead to changes in benefit plans that expressly exclude on religious grounds transgender coverage and/or same-sex spousal benefit.

These directives were not unexpected. Nonetheless, they mark a sharp reversal of DOJ policy. Under the Obama Administration, the DOJ had held the position that transgender employees were protected from discrimination under Title VII, congruent with the EEOC’s position. Specifically, the Department’s position was that gender identity discrimination was a form of sex stereotyping and thus covered by under Title VII. The DOJ intervened in litigation throughout the country advocating this view of the statute. Likewise, the prior administration argued in Hobby Lobby v Burwell, that private companies cannot claim exemption on religious grounds from generally applicable statutes.

In addition, the DOJ’s new course puts it at odds with the EEOC. The EEOC continues to advocate for a broad interpretation of Title VII that extends to claims of sexual orientation and gender identity discrimination. Further it remains the EEOC ‘s position that a business cannot defend otherwise discriminatory conduct by arguing such conduct was consistent with its religious beliefs.

The memos underscore that this is an area of law filled with uncertainty. The law on the scope of Title VII’s coverage, and the ability of religion to act as an affirmative defense to otherwise discriminatory conduct, remain unsettled. The memos do not resolve the issue. The Department of Justice has stated its viewpoint and direction, but these directives do not supersede state or federal law already in place. Further, these memos do not control the position of the EEOC.

It is anticipated that these memos will lead to an increase in targeted employment lawsuits from impact groups. How such cases will turn out is unknown.

What is known is that these issues will remain in flux until either the Supreme Court hears the issue or Congress passes clarifying legislation. This term, the Supreme Court in Masterpiece Cakeshop will be given the opportunity to provide some insight into how it views the tension between religious rights and principles of non-discrimination. The case involves whether or not a business (here a bakery) is permitted to refuse service to same-sex couples on the basis of the business-owner’s faith. The baker asserts a First Amendment rights to religious liberty and freedom of speech. A ruling in favor of the baker would be consistent with the DOJ’s October 6 memo, and could dramatically change the employment law landscape. As with the DOJ memo, such a ruling could be relied on by employers and plan sponsors to justify otherwise discriminatory actions in hiring, promotion, firing and plan design.

As the policy change by the DOJ is not binding, it is not advisable to shift employment policies based upon the Attorney General’s statements. Treating transgender employees with equality in the workplace is a best practice standard that increases employee safety and productivity and helps with recruitment, retention and morale. Further, inclusive policies mitigate against the risk of potential litigation. In addition, several states and cities have protective statutes that prohibit discrimination against transgender people in employment, and federal courts in multiple jurisdictions have found transgender claims covered by Title VII.